DERIVATIVE CLAIMS AND UNFAIR PREJUDICE PETITIONS
In the context of increasing shareholder activism in the UK, it is interesting to reflect upon the apprehension that greeted the introduction of the statutory regime for derivative claims in the Companies Act 2006 (the Act). There were some fears that this development, alongside the wide discretion afforded to the courts in assessing the existence of unfairly prejudicial conduct, might herald a wave of new shareholder litigation. However, as explained below, these fears seem not to have materialised.
In this article we consider some of the key English cases which illustrate how judges have sought to keep derivative claims and unfair prejudice petitions within measured bounds since the Act. We also briefly touch upon other alternative avenues shareholders may use to assert their rights.
The regime for redress
Before reviewing the cases it is helpful to recap the two main methods shareholders may use to protect their rights.
Sections 260 to 264 of the Act provide the statutory footing for derivative claims which previously existed at common law (replacing the problematic Foss vs. Harbottle jurisprudence). The distinguishing feature of a derivative claim is that the action, though initiated by a shareholder, is brought in the name of the company and permission of the court is required to continue the claim.
Section 994 of the Act, meanwhile, replicates the wording of section 459 of the Companies Act 1985 which previously governed unfair prejudice petitions. Unlike a derivative action, a section 994 petition is brought in the name of the shareholder who will allege that the company’s affairs are being conducted in a manner which is unfairly prejudicial to the company’s shareholders.
Jul-Sep 2015 issue
Herbert Smith Freehills LLP